Government report shows rents fell by 7.9% in Jeddah in the first quarter of 2018
Housing rental prices have weakened in Saudi Arabia this year due to tough economic conditions and new labour fees imposed on expat employees, according to two analysts and recent real estate market reports.
A housing report issued by the Saudi Arabian Ministry of Housing in April showed a quarter-on-quarter decline in the rental cost of houses in many Saudi cities in the first three months of 2018.
According to the report, residential rents - excluding utilities and other housing costs – dropped by 7.9 percent in Jeddah, Saudi’s commercial and business hub, by 3.8 percent in Mecca and by 0.6 percent in the kingdom’s capital, Riyadh. Rents went up by 1.7 percent in Medina and by 17.9 percent in Dammam - a main hub for the oil industry in Saudi Arabia’s Eastern Province.
Turki Fadaak, a Saudi-based analyst and member of the Saudi Economic Association, said that the decrease in residential rents was mainly driven by the departure of many expat employees after the kingdom imposed an expat levy last year. The Saudi Economic Association is an academic and economic research body set up by the kingdom’s popular public university, King Saud University.
“It (the decrease in residential rents) is due to the rise of the private sector costs during the first half of this year, partially because of the doubling of expat fees besides increases in the costs of electricity and fuel,” Fadaak told Zawya in an email interview on Monday.
The kingdom announced in 2016 the introduction of a 200 Saudi riyal ($53.3) levy per expat employee per month, which began in 2017, Arab News reported in December 2016. The tax is paid by companies where expats’ employees exceed the number of local employees.
Lower fees were charged on companies whose total number of expats was equal to, or less than, local employees. The kingdom also introduced a 100 riyal fee per dependent per month from July last year. Both fees were subject to annual increases starting from 2018, when each fee almost doubled. These fees are expected to continue increasing over the next two years and are expected to range between 400 riyals to 800 riyals by year 2020, according to Arab News.
“We believe that weakness in housing prices was largely due to the deteriorating macroeconomic environment,” Raphaele Auberty, a Middle East and Africa region country risk analyst for BMI Research, told Zawya in an email interview on Monday.
“The outflows of expat workers seen in recent months is another negative for housing prices,” he said.
Two reports published on the Riyadh and Jeddah real estate markets earlier this month by real estate consultancy JLL said that average apartment rents in Jeddah fell by 2.5 percent quarter-on-quarter in the three months to June 30, and were 8.3 percent lower year-on-year. Villa rents fell by 3.2 percent quarter-on-quarter, and were 5.6 percent lower year-on-year.
As for Riyadh, average residential rents were flat quarter-on-quarter, and were 4 percent lower year-on-year. Apartment sales were 3 percent lower year-on-year and villa sales were 4 percent lower, and the report forecast a “further downward pressure on both prices and rents” over the next 12 months.
Revenue-raising measures
Saudi Arabia is the biggest economy in the Middle East, followed by the United Arab Emirates and Egypt. The kingdom’s economy is mainly driven by oil revenues – it is the world’s top oil exporter - and its economy suffered following a sharp fall in global oil prices that began in 2014.
Saudi Arabia had a record budget deficit of 367 billion riyals ($97.9 billion) in 2015, but pared this back to 230 billion riyals in 2017, with a forecast of a further reduction to 195 billion riyals this year as it has sought to plug a deficit caused by falling oil revenues.
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